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Carillion crisis: Theresa May rules out bailout as Labour accuses ministers of collusion - live updates Carillion crisis: Theresa May rules out bailout as Labour accuses ministers of collusion - live updates
(35 minutes later)
Labour MP Rachel Reeves is also piling pressure on the government tonight.
She’s calling on ministers to urgently tighten Britain’s corporate governance rules to prevent another Carillion crisis.
Reeves, who chairs the Business, Energy and Industrial Strategy select committee, says firms shouldn’t be allowed to pay out dividends when they’re also reporting profit warnings or losing money.
She told the BBC News that:
In the end, the people who lose out when money is siphoned off is suppliers, workers, and when government contract are involved it’s ultimately the British tax payer.
It’s not acceptable that those risks can be transferred to the taxpayers and employees, while the executives get the bonuses and the dividends.
That’s not right and the corporate governance code urgently needs to be tightened up in the light of this scandal.
As workers, suppliers and taxpayers pay the price for Carillion's collapse, the Chief Executive who was sacked last year for his part in the company's downfall is still being paid £660,000 a year. Govt must act to prevent companies siphoning off millions at taxpayers' expense. pic.twitter.com/vYSJbCQrgg
Here are the key quotes from shadow chancellor John McDonnell in parliament earlier today, as he called for “full transparency” into the Carillion crisis.
“When there were loud and clear worrying signs about Carillion, why, instead of intervening, did the Treasury Minister collude in the strategy of drip-feeding more contracts to Carillion to buoy up an obviously failing company?”
“I put it no stronger than this: at this stage, there are real suspicions that the Government was too close to this company and too wedded to its privatisation role.
“We need full transparency on meetings and discussions that took place between Government ministers, civil servants and representatives of Carillion and what warnings were given to ministers and what actions recommended implemented or not.
We now need the Treasury to start playing its proper role and provide an independent assessment of the potential costs and risks facing the taxpayer.”
In response Liz Truss, Chief Secretary to the Treasury, reiterated Theresa May’s view that taxpayers shouldn’t bail Carillion out.
“It would be completely wrong for a company that had got itself in this state to be bailed out by the state and that is what we are not doing.
Truss also accused McDonnell of taking ‘cheap shots’.
“I think that the Government is dealing with this in a responsible and measured way, rather than making cheap political shots at a time when people’s jobs are in question and we are working to sort that out.”
The Federation of Small Businesses is alarmed to hear that Carillion’s creditors might only recover 1% of the money they are owed (as flagged up earlier).The Federation of Small Businesses is alarmed to hear that Carillion’s creditors might only recover 1% of the money they are owed (as flagged up earlier).
The Evening Standard’s Russell Lynch has the details:The Evening Standard’s Russell Lynch has the details:
The revelation comes in a High Court witness statement submitted by the interim chief executive, Keith Cochrane, on the company’s liquidation yesterday and seen by the Standard.The revelation comes in a High Court witness statement submitted by the interim chief executive, Keith Cochrane, on the company’s liquidation yesterday and seen by the Standard.
Cochrane’s account of the six-month prelude to the company’s demise also delivers a broadside against the firm’s lenders and reveals that private sector clients were refusing to give them new work in contrast with the Government, which awarded them major contracts on the HS2 rail scheme last summer.Cochrane’s account of the six-month prelude to the company’s demise also delivers a broadside against the firm’s lenders and reveals that private sector clients were refusing to give them new work in contrast with the Government, which awarded them major contracts on the HS2 rail scheme last summer.
Carillion collapsed under the weight of £1.6 billion in debts and a pension deficit of £587 million this week, leaving many suppliers facing ruin. But Cochrane’s statement also refers to an “entity priority analysis” by accountants EY, which had been working with the firm since the summer, on the impact of a potential failure of the bank last month.Carillion collapsed under the weight of £1.6 billion in debts and a pension deficit of £587 million this week, leaving many suppliers facing ruin. But Cochrane’s statement also refers to an “entity priority analysis” by accountants EY, which had been working with the firm since the summer, on the impact of a potential failure of the bank last month.
“This showed that the insolvency recovery for creditors in the event of a group-wide liquidation would be an average of between 0.8p in the pound and 6.6p in the pound,” he wrote.“This showed that the insolvency recovery for creditors in the event of a group-wide liquidation would be an average of between 0.8p in the pound and 6.6p in the pound,” he wrote.
The Federation of Small Businesses said: “If these figures are correct, many small businesses will not be able to cope with that kind of impact on their cashflow.”The Federation of Small Businesses said: “If these figures are correct, many small businesses will not be able to cope with that kind of impact on their cashflow.”
Carillion crisis: suppliers could get less than 1p in pound, PwC slammed, banks to take hit https://t.co/0LFhpVVZ8P pic.twitter.com/v8TO5Y4GjaCarillion crisis: suppliers could get less than 1p in pound, PwC slammed, banks to take hit https://t.co/0LFhpVVZ8P pic.twitter.com/v8TO5Y4Gja
Here’s a video clip of John McDonnell telling MPs today that the government was “too close” to Carillion, and chose to “drip-feed” contracts to the company rather than heed the warning signs.Here’s a video clip of John McDonnell telling MPs today that the government was “too close” to Carillion, and chose to “drip-feed” contracts to the company rather than heed the warning signs.
“There are real suspicions that this Govt was too close to Carillion & too wedded to it's privatisation role.""We need full transparency of the meetings that took place between Govt ministers and representatives of #Carillion." @johnmcdonnellMP pic.twitter.com/qEJRqocfFo“There are real suspicions that this Govt was too close to Carillion & too wedded to it's privatisation role.""We need full transparency of the meetings that took place between Govt ministers and representatives of #Carillion." @johnmcdonnellMP pic.twitter.com/qEJRqocfFo
Shares in UK geotechnical engineering contractor Van Elle have tumbled by almost 8% today, after it told shareholders that it is owed £1.6m by Carillion.Shares in UK geotechnical engineering contractor Van Elle have tumbled by almost 8% today, after it told shareholders that it is owed £1.6m by Carillion.
The Carillion crisis has spurred many Guardian readers to write in with your views (as well as many excellent online comments, of course!).The Carillion crisis has spurred many Guardian readers to write in with your views (as well as many excellent online comments, of course!).
For example, Paul Davies of Goring, Oxfordshire, says ministers must be held to account:For example, Paul Davies of Goring, Oxfordshire, says ministers must be held to account:
The government has been trumpeting its code that requires large companies to treat their suppliers fairly and pay them on the same terms as the government pays the big companies. Instead it has emerged that Carillion used its suppliers as a bank – refusing to pay them except on 120-day terms, while being paid on 30-day terms by the government.The government has been trumpeting its code that requires large companies to treat their suppliers fairly and pay them on the same terms as the government pays the big companies. Instead it has emerged that Carillion used its suppliers as a bank – refusing to pay them except on 120-day terms, while being paid on 30-day terms by the government.
For the officials and ministers in so many departments to have turned a blind eye to this bullying by Carillion is a disgrace and it is surely time that both officials and ministers in transport, defence, health, education and elsewhere are held accountable for this total failure. If ministers weren’t aware of this, the officials should be subject to disciplinary procedures.For the officials and ministers in so many departments to have turned a blind eye to this bullying by Carillion is a disgrace and it is surely time that both officials and ministers in transport, defence, health, education and elsewhere are held accountable for this total failure. If ministers weren’t aware of this, the officials should be subject to disciplinary procedures.
The brevity award goes to Rick Barker of Stocksfield, Northumberland:The brevity award goes to Rick Barker of Stocksfield, Northumberland:
“More is not always better. Million, billion, trillion… Carillion.”“More is not always better. Million, billion, trillion… Carillion.”
Tomorrow’s newspaper includes a selection of the best, which are online here:Tomorrow’s newspaper includes a selection of the best, which are online here:
Our lead package for tomorrow's letters spread https://t.co/UJDBtMKx0AOur lead package for tomorrow's letters spread https://t.co/UJDBtMKx0A
Reuters has calculated that Carillion paid out $1bn (£775m) to its shareholders in dividends since the firm was created 19 years ago.Reuters has calculated that Carillion paid out $1bn (£775m) to its shareholders in dividends since the firm was created 19 years ago.
The company has been criticised for its ‘progressive dividend’ policy -- basically boosting returns to investors each year.The company has been criticised for its ‘progressive dividend’ policy -- basically boosting returns to investors each year.
Had it paid out less, it could have done more to tackle its pension deficit (£580m), and could have trimmed its net debts, which swelled to £900bn by the time of its collapse.Had it paid out less, it could have done more to tackle its pension deficit (£580m), and could have trimmed its net debts, which swelled to £900bn by the time of its collapse.
Labour’s shadow chancellor John McDonnell has blamed “shambolic Tory government and mismanagement by Carillion’s fat-cat bosses for the company’s collapse.Labour’s shadow chancellor John McDonnell has blamed “shambolic Tory government and mismanagement by Carillion’s fat-cat bosses for the company’s collapse.
Writing in the Guardian tonight, McDonnell says:Writing in the Guardian tonight, McDonnell says:
Nothing has come to symbolise the worship of free market solutions – often against all the evidence – more than the persistent belief that key public services would be better provided by profit-seeking companies. As the journalist Robert Peston put it, the collapse of Carillion represents the definitive end of a 25-year love affair with the private provision of public services.Nothing has come to symbolise the worship of free market solutions – often against all the evidence – more than the persistent belief that key public services would be better provided by profit-seeking companies. As the journalist Robert Peston put it, the collapse of Carillion represents the definitive end of a 25-year love affair with the private provision of public services.
The end of the affair has revealed some unedifying details about some of the participants in it: the apparent reliance by Carillion’s management on “low-balling” bids to win them, then sweating suppliers and workers to squeeze a profit; Chris Grayling’s insistence on awarding Carillion the HS2 contract even after its first profit warning; David Cameron’s decision to appoint Carillion’s chairman, Philip Green, as an adviser on corporate responsibility.The end of the affair has revealed some unedifying details about some of the participants in it: the apparent reliance by Carillion’s management on “low-balling” bids to win them, then sweating suppliers and workers to squeeze a profit; Chris Grayling’s insistence on awarding Carillion the HS2 contract even after its first profit warning; David Cameron’s decision to appoint Carillion’s chairman, Philip Green, as an adviser on corporate responsibility.
McDonnell also points out that Labour has promised not to sign any new PFI contracts if it wins the next election, adding:McDonnell also points out that Labour has promised not to sign any new PFI contracts if it wins the next election, adding:
If the Tories won’t wake up to the reality of the changing economic landscape, it’s time they stood aside and let us take over.If the Tories won’t wake up to the reality of the changing economic landscape, it’s time they stood aside and let us take over.
Andrew Bounds, the Financial Times North of England correspondent, reports that there was little action at a Carillion site in Salford, Manchester, today:Andrew Bounds, the Financial Times North of England correspondent, reports that there was little action at a Carillion site in Salford, Manchester, today:
The “come to work” message has not got through to #Carillion private sector sites. This one in Salford by the Lowry Hotel. pic.twitter.com/BJL5Acv809The “come to work” message has not got through to #Carillion private sector sites. This one in Salford by the Lowry Hotel. pic.twitter.com/BJL5Acv809
Here’s a picture of Andy Bradley of Flora-Tec, who was forced to lay off 10 staff because he’s owed £800,000 by Carillion (see this morning’s posts)Here’s a picture of Andy Bradley of Flora-Tec, who was forced to lay off 10 staff because he’s owed £800,000 by Carillion (see this morning’s posts)
I think he’s holding some mulch. Manure might be more appropriate, given the situation facing hundreds of Carillion’s own suppliers.I think he’s holding some mulch. Manure might be more appropriate, given the situation facing hundreds of Carillion’s own suppliers.
The agency Scottish Enterprise is setting up a hotline to help any Scottish companies affected by the collapse of Carillion, particularly on the £1.5bn project to build the Aberdeen bypass.
Keith Brown, the Scottish economy secretary, outlined the measures to MSPs this afternoon.
Answering an emergency question at Holyrood, Brown said the 36-mile long Aberdeen Western Peripheral Route (AWPR) should continue without significant disruption as the two other firms in the consortium, Galliford Try and Balfour Beattie, were contractually obliged to keep the working going.
The hotline number is 0300 013 3385.
Businesses can also register their details at https://www.scottish-enterprise.com/help/contact-us
However, details about the impact on the AWPR’s delivery date, on contractors and employees, or on other Scottish businesses affected by Carillion’s collapse, remain sketchy. Galliford Try and Balfour Beattie estimate it will cost them an extra £60-£80m to over Carillion’s withdrawal from the AWPR project.
Carillion also has facilities management contracts with Scottish public sector bodies, and is working for Network Rail and the Ministry of Defence in Scotland. The Scottish Builders Federation and Federation of Small Businesses have urged their members to come forward if problems emerge. Brown told Jackie Baillie, of Scottish Labour, some contracts may need to be taken over the public sector.
The firms building the AWPR, a PFI-style scheme with a construction price of about £550m at 2012 prices but a total contract cost of £1.47bn, have already admitted it is far more costly than expected. Galliford Try said in September it had lost £89m on two fixed-price Scottish projects: the AWPR and the new Queensferry bridge over the Firth of Forth, and would no longer bid for fixed price public contracts.
Patrick Harvie, the Scottish Green party co-leader, urged Audit Scotland, the public spending watchdog, to include Carillion’s collapse into its investigation into Scottish government PFI projects. The Audit Scotland inquiry was launched after the Guardian disclosed ministers had lost £450m in public borrowing on the AWPR because it breached strict European rules on how PFI projects are included in government accounts.
The shockwaves from Carillion’s liquidation has reached Canada, where the company employs 6,000 people.
Canadian unions say the crisis shows that handing key public services to private companies is a mistake. They are pushing Ontario’s provincial government to stop the privatisation of hospital service contracts.
Reuters has the details:
The call for the Canadian government to step in came from Unifor and the Ontario Council of Hospital Unions (OCHU/CUPE), which represents employees at the William Osler Health System, The Royal Ottawa Hospital, Halton Healthcare and the Sault Area Hospital.
The hospitals have service contracts with Carillion, the unions said, adding the workers are among the 6,000 Canadian workers affected by the Carillion liquidation.
“It is also time for these projects to be brought back into the public sector. The folly of private ownership of the hospitals is exposed fully by this bankruptcy,” OCHU president Michael Hurley said in a statement.
Liberal Democrat leader Sir Vince Cable has welcomed the government’s decision to fast-track the investigation of Carillion’s current and former directors.
But, like John McDonnell earlier, he also wants ministers to answer questions about their actions.
“We also need a National Audit Office probe, followed by parliamentary scrutiny by the Public Accounts Committee to fully understand what led to Carillion’s collapse.
“We need to know why the Government felt it was not wrong to feed Carillion lucrative public sector contracts when they knew the company was in severe trouble because of its profit warnings.”
ITV’s Joel Hills has more details of the Carillion witness statement, and it’s very bad news for creditors:
Witness statement filed at High Court by Carillion CEO is doing the rounds. It’s fascinating. Reveals that expected recovery for creditors in liquidation is 0.8p - 6.6p in the £. Ouch.
Those creditors will include big banks, and also small firms who were contracted by Carillion such as Flora-tec which is already sacking staff.
Nationwide Building Society has agreed to pay around 250 Carillion employees who work its data centres and head office until the end of this month.
However, the future of up to 1,500 workers who clean its national branch network hangs in the balance, as the government is only protecting private-sector contract workers until Wednesday.
Tim Poil, general secretary of the Nationwide Group Staff Union, which directly represents 250 Carillion employees, said:
“We have been negotiating with Nationwide since the end of last week.
Nationwide has said to the Carillion employees on the Nationwide contract - about 250 in total - that they will ensure they will be paid to the end of the month.”
The 250 staff are understood to be maintenance engineers in the data centres, who were transferred from Nationwide to Carillion in 2008, plus reception and security staff at the society’s Swindon headquarters.
Carillion is also responsible for the cleaning of Nationwide’s 650 branches around the country - but had itself outsourced the work to other companies. The number of cleaners could be as high as 1,200 to 1,500, said Poil.
“My understanding is that Nationwide has been in touch with the company to ensure the branches do get cleaned,” said Poil, but their future contractual arrangements remain very unclear.
A major problem for private sector employers that outsourced to Carillion, said Poil, is that the company is officially neither in adminstration or insolvency. If Pricewaterhouse Coopers sells the service contracts to another outsourcing company, then the unions expect employees to be transferred (or Tupe’d) over to the new employer with existing terms and conditions.
But if Carillion is declared insolvent, then employers will have to decide whether to take employees back in house or hurriedly obtain a new outsourcing company to do the work.
Poil says:
“My question to Nationwide is, should you really be outsourcing these sorts of services? It might have looked good at first, but it has fallen apart. If they say to us again they want to outsource some work currently done in house, we’ll be saying, Carillion? Are you sure?”
An official spokesperson for Nationwide said the society hopes to issue a formal statement later today.
The FT reports that Carillion had reached a perilous financial position by the time it fell into liquidation on Monday morning.
Their reporter, Gill Plimmer, explains writes:
Carillion was left with just £29m in cash when it collapsed, according to a document that reveals the extent of the construction company’s financial black hole.
Papers seen by the Financial Times show the insolvent construction company owed £1.29bn to its banks, including a £790m revolving credit facility and £349m in private placement notes.
The papers also show that two firms were unwilling to become administrators, as they feared they might not get paid.....
So @gillplimmer1 has obtained papers showing:-Carillion had just £29m in cash when it collapsed-Owed £1.29bn to its banks (higher than previous guidance of £900m)-PwC and EY rejected requests to be administrators amid concerns they would not be paidhttps://t.co/JnDTGwsHAl
Newsflash: America’s stock market has hit a new alltime high, as the bull market continues.
The Dow Jones index jumped by 0.86%, or 223 points, to 26,027. This is the first time it has ever burst over the 26k mark. The S&P 500 and the Nasdaw are also at new peaks.
Dow Jones index opens above 26,000 points pic.twitter.com/JJxLf8fPBp
Now, the Dow isn’t a great measure of the US economy (or even the wider stock market, really). And this is just an arbitrary number. But, the speed at which shares are rising is remarkable - it’s less than two weeks since the Dow burst through 25,000.
Sky News is reporting that Carillion’s interim chief executive, Keith Cochrane, has accused Royal Bank of Scotland of undermining efforts to keep it afloat.
Cochrane apparently criticised banks, including RBS, in a witness statement filed at the High Court
Sky’s Mark Kleinman reports:
According to Mr Cochrane’s witness statement, RBS informed Carillion last Thursday that it wanted the company to pre-fund supplier payments made through the bank, which meant it would need to make those payments two days earlier than cashflow forecasts had assumed.
He said this negatively impacted Carillion’s liquidity by between £2m and £20m.
RBS, he added, insisted that this revised arrangement “would be in place until support from [the Government] had been agreed and that the terms of this support would determine whether other uncommitted facilities with RBS would be withdrawn”.
Having been bailed out in 2008, RBS is still majority-owned by the taxpayer -- who of course is now on the hook for potential costs at Carillion.
The UK division of Spanish bank Santanter has also been blamed, for making changes to Carillion’s ‘Early Payment Facility’ - used to make payments to suppliers.
Cochrane says:
“The company relied upon that EPF in order to assist it making payments to its suppliers.
“Santander informed the group’s suppliers that arrangements to automatically prepay invoices submitted by the supplier would be terminated and it sent a separate email to certain of its suppliers that ‘all payments with Carillion are stopped’.
Theresa May told her cabinet that the “taxpayer could not be expected to bail out a private company” following the collapse of Carillion, according to her official spokesman.
He said the prime minister addressed the issue at the start of this morning’s meeting of her top team of ministers, arguing that a lot of work had gone into trying to find suitable financing options but that had not proved possible.
The spokesman made clear that in the short term the government would ensure that public services carried out operating, but that was simply replicating money that would have gone to the company - rather than pushing up the bill for taxpayers.
Number 10: “There is no taxpayer money to bail out the company”... says money going to Receiver to pay for cost of insolvency, but other money for public services would have been paid to Carillion
They admitted that public money would have to go to paying the receiver. However, a Whitehall source denied the suggestion that the money could run into the hundreds of millions, saying “it will be nowhere near that”.
The official spokesman said May thanked David Lidington and other departments for making contingency arrangements. “The PM said that public services had continued to be provided but there would be no complacency,” he added.
“She said Government would be vigilant in monitoring for any emerging issues in public services and in providing support for employees of companies with private sector Carillion contracts.”
Business secretary, Greg Clark, also briefed the cabinet about his call for a fast-track investigation into the conduct of Carillion’s directors.
The spokesman said:
“This means the Official Receiver’s investigation will consider whether those who are, or were previously directors of the company may have caused detriment to those owed money, including workers and businesses affected.”
At Cabinet, Business Secretary Clark explained letter to Insolvency Service asking for statutory investigation into the conduct of Carillion directors to be extended to include previous directors and for it to be fast-tracked
Labour’s shadow chancellor, John McDonnell, has accused the UK government of colluding to support Carillion by ‘drip-feeding’ it with contracts.
Speaking on Sky News, McDonnell said ministers erred by keeping handing Carillion contracts in recent months, after July’s profit warning.
McDonnell is urging openness and transparency:
We need a full public inquiry, immediately, to find out exactly what happened.
We want to know what the government’s involvement in all this is.
McDonnell says the government needs to reveal how much the taxpayer could lose, now that the Official Receiver has taken control of Carillion.
This could be a bottomless pit if we’re not careful.
Greg Clark’s call for a ‘fast-track’ investigation comes “so late” in the day, McDonnell continues, suggesting that the government has serious questions to answer:
Government ministers seem to have colluded in a strategy where, even when they know the company was in trouble, when the company’s share price was collapsing and there were profit warnings and resignation [they] still drip-fed this company with public contracts.
It was just a strategy that was bound to fail, and put pressure on workers and unfortunately now taxpayer as well.
The Carillion collapse has raised real suspicions that the government was too close to this company and too wedded to its privatisation role