David Lidington – 2018 Statement on Carillion

Below is the text of the statement made by David Lidington, the Minister for the Cabinet Office, in the House of Commons on 15 January 2018.

With permission, Mr Speaker, I wish to make a statement to update the House on the situation relating to Carillion Plc.

Today the directors of Carillion concluded that the company is insolvent and that it is going into liquidation. The court has appointed the official receiver as the liquidator. It is regrettable that Carillion has not been able to find suitable financing options with its lenders, and I am disappointed that the company has become insolvent as a result. It is, however, the failure of a private sector company and it is the company’s shareholders and lenders who will bear the brunt of the losses; taxpayers should not, and will not, bail out a private sector company for private sector losses or allow rewards for failure.

I fully understand that both members of the public and particularly employees of companies in the Carillion group will have concerns at this time, and the Government are doing everything possible to minimise any impact on employees. Let me be clear that all employees should continue to turn up to work confident in the knowledge that they will be paid for the public services they are providing. Additionally, in order to support staff—and in this instance this will apply to staff working for the private sector as well as for the public sector contracts of the Carillion group—we have established a helpline using Jobcentre Plus through its rapid response service.

The Government are also doing everything they can to minimise the impact on subcontractors and suppliers who, like employees, will continue to be paid through the official receiver. The action we have taken is designed to keep vital public services running, rather than to provide a bail-out on the failure of a commercial company. The role of the Government is to plan and prepare for the continuing delivery of public services that are dependent on these contracts, and that is what we have done.

The cause of Carillion’s financial difficulties is, for the most part, connected not with its Government contracts, but with other parts of its business. Private sector contracts account for more than 60% of the company’s revenue, and the vast majority of the problems the company has encountered come from these contracts rather than the public sector.

Our top priority is to safeguard the continuity of public services, and we have emphasised that to the official receiver. We are also laying a departmental minute today notifying the House of a contingent liability incurred by my Department in indemnifying the official receiver for his administrative and legal costs. The official receiver will now take over the running of services for a period following the insolvency of the company. The Government will support the official receiver to provide these public services until a suitable alternative is found, either through another contractor or through in-house provision. The court appointment of the official receiver will allow us to protect the uninterrupted delivery of public services—something that would not have been possible under a normal liquidation process.

The official receiver is also under a statutory duty to investigate the cause of failure of any company. He is under a duty to report any potential misconduct of the ​directors to my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy. My right hon. Friend has asked that the investigation look not only at the conduct of the directors at the point of the company’s insolvency but also at that of any previous directors, to determine whether their actions might have caused detriment to the company’s creditors. That includes detriment to any employees who are owed money. The investigation will also consider whether any action by directors has caused detriment to the pension schemes.

Carillion delivered a range of public services across a number of sectors, including health, education, justice, defence and transport, and in most cases the contracts have been running successfully. We have been monitoring Carillion closely since its first profit warning in July 2017, and since then we have planned extensively in case the current situation should arise. We have robust and deliverable contingency plans in place. These are being implemented immediately to minimise any disruption and to protect the integrity of public service delivery. Other public bodies have been preparing contingency plans for the contracts for which they are responsible. The majority of the small number of contracts awarded after the company’s July profit warning were joint ventures, in which the other companies are now contractually bound to take on Carillion’s share of the work. For example, the Kier group, one of the joint venture partners for HS2, confirmed this morning in a release to the stock exchange that it had now put in place its contingency plans for such an eventuality.

I recognise that this is also a difficult time for pension holders. The Pensions Advisory Service has set up a dedicated helpline number for staff and pensioners who have concerns about their pensions. Those who are already receiving their pensions will continue to receive payment from the various pension funds, including the Pension Protection Fund. For those people who have started an apprenticeship programme with Carillion, the Construction Industry Training Board has set up a taskforce to assist apprentices to seek new employment, while also working with the Education and Skills Funding Agency to find new training placements. The official receiver will be in contact with all apprentices. Companies and individuals in the supply chain working on public sector contracts have been asked to operate as usual. Normally, in the event of a company going into liquidation, the smaller firms working for it move across to the new contractor when it takes on the work.

The private sector plays an important and necessary role in delivering Government services—something recognised by this and previous Governments of all political parties. Currently, 700 private finance initiative and private finance 2 contracts reflecting capital investment of up to approximately £60 billion are being delivered successfully, and we also have a number of service provision contracts being delivered successfully by a range of companies. Such contracts allow us to leverage the expertise of specialist providers and to deliver value for money for taxpayers. I would like to reassure the House that we are doing all we can to ensure the continuity of the public services provided by Carillion and to support an orderly liquidation of the company.

I shall write to all right hon. and hon. Members today to summarise the situation and to inform colleagues of a helpline for the use of Members and their staff to provide answers in the fastest possible time to any ​constituency problems that may arise. Along with other ministerial colleagues, I shall keep the House updated on developments as the official receiver starts to go about his work. I commend this statement to the House.