Public services ‘will be protected’ after Carillion collapse

15 Jan 18

Ministers have pledged that all public services will be protected following the demise of Carillion, a major contractor responsible for a host of buildings and services across the public sector.

Ministers have pledged that all public services will be protected following the demise of Carillion, a major contractor responsible for a host of buildings and services across the public sector.

It was announced this morning that Carillion, which employs 19,500 people in the UK, would initiate insolvency proceedings.

This follows months of financial turmoil at the company. Two profit warnings were issued last year and there have been several changes of senior management – a new chief executive was set to take over on 22 January.

Talks with ministers had been underway but failed to reach agreement. The company had £900m debt and a £580m pension scheme deficit, which outweighed its stock market valuation.

The government today confirmed that the Official Receiver has been appointed as liquidator along with PwC partners who have been appointed special managers.

“Government will provide the necessary funding required by the Official Receiver to maintain public services,” it said.

Cabinet Office minister David Lidington stated: “It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company.”

He added: “It is of course disappointing that Carillion has become insolvent, but our primary responsibility has always been to keep our essential public services running.”

Lidington urged all affected employees to go into work and assured them they would continue to be paid. “Staff that are engaged on public sector contracts still have important work to do.”

According to the Cabinet Office, Carillion holds around 450 government contracts, which make up 38% of its business. Key contracts are with the Department for Education, the Department of Health and Social Care, the Ministry of Justice, Ministry of Defence and Department for Transport.

It provides facilities management services to schools, hospitals, prisons and some local government properties.

A spokesperson for the Local Government Association said those councils affected by the collapse of Carillion had been “monitoring the situation closely and are implementing contingency plans to keep services running as normally as possible”.

“Councils are also working with other public sector partners in their local area to be ready for any wider knock-on effects of Carillion’s failure,” he added.

The contractor’s construction business has been involved in the £400m Battersea Power Station Phase 1 redevelopment, the £335m Royal Liverpool University Hospital and the new Library of Birmingham. It also manages the Smart Motorways traffic control system.

Meg Hillier, chair of the Commons Public Accounts Committee, said the government had “serious questions to answer about its role in allowing taxpayers’ exposure to escalate to this point”.

She said: “Carillion’s collapse raises grave concerns about jobs, the delivery of public services and the way government conducts its business.

“The Public Accounts Committee has previously warned of the risks when contractors, paid from the public purse, become too big to fail.”

Lidington said private finance had helped deliver £60bn in capital investment since the 1990s and said the government would continue to partner with “responsible firms” in the future.

Carillion chair Philip Green said it was a “very sad day” for the company.

In a statement published in the Financial Times, he said: “In recent days…we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision.”

The Carillion pension fund is expected to be transferred to the Pension Protection Fund, the government-backed rescue scheme, although future payouts are likely to be reduced.

Tom McPhail of financial advisers Hargreaves Lansdown said: “Whilst the PPF provides valuable security, members who have not yet reached retirement should be prepared for a cut to their pension pay outs.

“This will involve an immediate cut of 10%, plus the possible loss of some inflation proofing; higher earners may be affected by the PPF cap on payouts which currently stands at £34,655.05.”

  • Vivienne Russell

    Vivienne Russell is managing editor of Public Finance magazine and publicfinance.co.uk

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