Public Accounts Committee Statement on Carillion - May 24

Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op) 

As Members will recall, the House agreed on 24 January that the Government’s risk assessments of its strategic suppliers should be released to the Public Accounts Committee. I commend my fellow Committee members for their hard work in looking closely at all those papers. Yesterday, we published in full the papers relating to Carillion, which of course subsequently collapsed. We strongly believe that taxpayers, and those who were served by the public services that Carillion was supplying, deserve to know what happened.

The Carillion papers identify clear and compelling problems with the business in the months leading to its collapse. The Carillion assessments—the documents the Government were using—show that although Carillion had been rated as “amber”, owing to its performance against contracts with the Ministry of Defence and the Ministry of Justice, it was not until after Carillion issued a profit warning in July last year that the Government downgraded it to “red”. It therefore appears that the Government were not aware of Carillion’s financial distress until that point. In November last year, officials recommended a provisional “black” rating for Carillion—that information has come directly from the papers that we have published—but following representations from the company, the Cabinet Office did not confirm that designation. Carillion collapsed less than two months later.

The Committee has also considered papers relating to the other 27 strategic suppliers. A strategic supplier is a company that has business worth £100 million or more across central Government and their agencies. The risk assessments relating to other strategic suppliers raise concerns about their performance against contracts, and about the relationship between strategic suppliers and the Government. The Committee has currently chosen not to publish those papers, although I warn the Minister that we reserve the right to do so. We have been clear every step of the way, as we have looked at these papers, that our duty is to be responsible, not reckless. We are mindful of the impact of releasing information that could damage jobs and smaller supply chain businesses, and it is not our intention recklessly to pursue that. However, there might be information that we choose to put in the public domain at a later point.

The Government have become dependent on large contracts to deliver public projects and services, and great secrecy surrounds them. If a company providing a number of those contracts fails, that is bad news for service users and the taxpayer. The Government should act in the interests of the taxpayer and the public, but the system has become skewed so that too often the Government act to protect the contractor, rather than the service user. The system is broken. There are not enough suppliers bidding for contracts across whole swathes of Government, and the system is skewed against smaller, specialist businesses that get work only as part of a longer supply chain. At each stage, margins are squeezed, and too often we see poor service, sharp practice and an unnecessary cost to taxpayers. There remains in government a shortage of the necessary skills to let and manage contracts. Quite simply, the Government are not a clever client, and taxpayers and small businesses are losing out as a result. The Public Accounts Committee has agreed that we will look closely at the nature of the relationship between the Government and their strategic suppliers, the Government’s approach to procurement and contractual management, and—of course—the impact on taxpayers and service users every step of the way.

Failure of essential services is not an option, but neither is the prospect of the Government bailing out private companies that fail. Some of the companies are running such large swathes of Government that they have become too big to fail. Carillion continued to believe, as it set out in evidence to us in a joint hearing with the Public Administration and Constitutional Affairs Committee, that it would receive a Government loan to keep it going, right up to the moment of collapse in January.

The Public Accounts Committee has long raised concerns about the lack of transparency in large contracts funded by taxpayers to deliver public services. Our concern, especially given what we have seen in the papers, is that secrecy can lead to a cosy relationship in which the Government are more focused on the interests of the supplier, because of the potential impact of the collapse of that supplier. We can see those problems with other strategic suppliers in the papers we have received, and we will be calling them before the Committee, as well as those in government, to challenge them and to consider how this broken system can be fixed.

Mr Philip Hollobone (Kettering) (Con) 

I congratulate the hon. Lady on her statement and her chairmanship of the Committee—she is doing a superb job. I also congratulate her on the release of the papers today. Does she expect to publish a fuller report by the summer recess?

Meg Hillier 

As a Committee, we always set deadlines for the Government when we make recommendations, so I commit to the hon. Gentleman that it is fully our intention to publish a wider report on strategic suppliers by the summer recess. We do not quite know how our inquiry will go, because clearly we are evidence-led, but that is our aim.

Christian Matheson (City of Chester) (Lab) 

I congratulate the Chair of the Committee on another excellent report, and on the forensic and measured way in which she delivered her statement. I hope that the Government take fair notice, although I worry that that may be a forlorn hope.

The Government were given a recommendation by the commercial relationships board that Carillion should be designated “high risk”. The Government ignored that, although the reason why remains unclear. Can my hon. Friend provide any further evidence of the reason for that rejection? The Government did not disclose that designation at the time of the Carillion scandal. Was that to protect their mates in Carillion rather than the taxpayer? The former chair of Carillion, Philip Green, was a Conservative supporter and Government advisor. Was the Government’s relationship with him more important than their responsibility to the taxpayer? We hope that the Government will now act on that responsibility and stop awarding contracts to big suppliers that continually fail to deliver.

The Government are too reliant on a small range of big private contractors. They have done little to widen that charmed circle, even though doing so would increase competition, support small and medium-sized enterprises, reduce costs and, critically, make us less reliant on suppliers in financial straits. Will my hon. Friend now widen her inquiry to look at others that may have been signed off by Ministers, contrary to recommendations of the commercial relationships board?

Mr Deputy Speaker (Sir Lindsay Hoyle) 

I obviously welcome the hon. Gentleman to his position, but for future reference, he is supposed to ask a shortish question. Brief questions are ideal, even from Front-Bench speakers.

Meg Hillier 

I would say to my hon. Friend that a piece of the jigsaw is missing. The papers released to the Public Accounts Committee only went so far, and the evidence we were given does not indicate when the Government made a decision about what to do with the recommendation in the risk assessment papers. I cannot provide any more evidence for why the Government chose not to implement the “black” rating at that stage, but I assure my hon. Friend that we are widening our inquiry and have access to the other papers. Sadly, and rather depressingly, the Committee has a large back catalogue, and we have highlighted a number of issues to do with contract management in government. We will not leave a stone unturned in our inquiry, and as I said to the hon. Member for Kettering (Mr Hollobone), we hope to publish a report by the summer recess.

Ronnie Cowan (Inverclyde) (SNP) 

I welcome this comprehensive report. When Carillion collapsed, a number of Select Committees scrambled to take evidence, including the Public Administration and Constitutional Affairs Committee and the Transport Committee. One thing that really struck me was that after the first credit warning, the UK Government continued to grant contracts of £2 billion to Carillion. The Scottish Government started mitigating that, and offsetting the damage right there and then, but after the second and third warnings, there were more contracts. Does the hon. Lady agree that the Government adopted the attitude that Carillion was too big to fail? They played fast and loose with taxpayers’ money and offered more contracts to paper over the cracks when there was clearly a cash-flow problem in the first place.

Meg Hillier 

The hon. Gentleman hits an important nail on the head. The problem with large companies dealing with large contracts is that cash flow can be a problem, and it is tempting for the Government to step in to deal with that. This is a real issue because if a Government contract is failing, it is still difficult for the Government not to award other contracts because of contract law, and we think that that area needs to be looked into. In any other situation, it would be crazy to give a contract to a supplier that was clearly failing. Given the size of these contracts, few organisations are bidding, and that means that some organisations are running huge swathes of Government and have effectively become proxy Departments, even though they are in the private sector, which means that that the Public Accounts Committee and other Select Committees do not have the same oversight of them. The National Audit Office can look at a contract, but not at how the company is running. There are real issues here, and we want greater transparency in these contracts. We will be looking closely at the issues raised by the hon. Gentleman in our inquiry.

John Spellar (Warley) (Lab) 

I congratulate my hon. Friend on an excellent report. Does it not demonstrate a clear systemic failure and an unwillingness to confront bad practice, all of which led to significantly greater long-term cost? Such failure is still continuing in government. More than four months after the collapse of Carillion, work has still not restarted on the Midland Metropolitan Hospital, and I understand there are similar problems at Liverpool. Two thirds of the money for my hospital has already been spent. Security and other costs are rising on a daily basis, and the building will be deteriorating. I have raised this issue endlessly with Ministers, and with the Prime Minister twice in this Chamber, so will the Committee look at the failure of decision making in government and what is, basically, paralysis by process?

Meg Hillier 

My right hon. Friend, as ever, raises his point in a very effective way. This is one of our concerns about the size of contracts. If the collapse of a large supplier means that a hospital in our one of our constituencies is not completed, we see that the system is skewed to try to ensure that does not happen, but that means that the interests of the supplier can come first, in that they might end up being bailed out. Carillion was deluded in believing that it would be given a bail-out, and we want to examine why it kept believing, right up to the moment of collapse, that a loan would come.

Karin Smyth (Bristol South) (Lab) 

I commend my hon. Friend and the work of the Committee for the report. When I had the pleasure to serve on the Committee with her, we looked very seriously at apprenticeships. In my constituency, the City of Bristol College stepped in to pick up the apprenticeship programme to ensure that young people in particular were still able to remain in it. Will the Committee bring the two issues together and recognise the important work of other providers to pick up work from the collapse of Carillion?

Meg Hillier 

I thank my hon. Friend. That would be outside the remit of our next inquiry, but she highlights an important point. The collapse of a large supplier has a wider impact than simply the contracts it runs, because suppliers are so embedded in the system. The way in which apprenticeships work means that, quite rightly, private businesses are providing apprenticeships, but there is a real risk of a ripple effect when a large supplier collapses. That goes back to the point about how large such suppliers are and how difficult it is for the Government to allow them to fail, which can then skew Government decision making.