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Capita not comparable to Carillion, says minister Capita not comparable to Carillion, says minister
(35 minutes later)
The government has said it held talks with Capita after the outsourcing firm issued a profit warning that wiped more than £1bn off its stock market value. Capita is "not comparable" to Carillion according to the government, following a shock profit warning that wiped more than £1bn off its stock market value.
Cabinet Office Minister Oliver Dowden told the House of Commons his officials met senior executives of Capita to discuss the impact of its announcement.Cabinet Office Minister Oliver Dowden told the House of Commons his officials met senior executives of Capita to discuss the impact of its announcement.
However, he said Capita was not "in a comparable position" to Carillion, which went bust. He said Capita was not "in a comparable position" to Carillion, which went bust last month.
"This company is in a very different situation," he said One Labour MP called the government's thinking "muddled and complacent".
'Different situation'
Capita announced on Wednesday that its profits for 2018 would fall short of previous expectations, that it was suspending its dividend payments to shareholders and that it would raise £700m through issuing new shares.Capita announced on Wednesday that its profits for 2018 would fall short of previous expectations, that it was suspending its dividend payments to shareholders and that it would raise £700m through issuing new shares.
The company operates the London congestion charge, runs the government's Jobseeker's Allowance helpline and administers the teachers' pension scheme. It also collects the TV licence fee on behalf of the BBC.The company operates the London congestion charge, runs the government's Jobseeker's Allowance helpline and administers the teachers' pension scheme. It also collects the TV licence fee on behalf of the BBC.
Its shares plunged by nearly 50% following the profit warning. Capita's shares fell a further 5.1% to 173.20p on Thursday.Its shares plunged by nearly 50% following the profit warning. Capita's shares fell a further 5.1% to 173.20p on Thursday.
Answering an urgent question from Rachel Reeves, chairwoman of the Business Select Committee, about whether Capita poses a risk to public services and finances, Mr Dowden said: "We continue to work closely with the company to monitor the execution of its plan, and of course to ensure the continued delivery of public services." Answering an urgent question from Labour MP Rachel Reeves, chairwoman of the Business Select Committee, about whether Capita poses a risk to public services and finances, Mr Dowden said it was "in a very different situation" to that of Carillion.
He added: "We regularly monitor the financial stability of all our strategic suppliers including Capita and we do not believe that they are in a comparable position to Carillion. He said: "We continue to work closely with the company to monitor the execution of its plan, and of course to ensure the continued delivery of public services.
"We regularly monitor the financial stability of all our strategic suppliers including Capita and we do not believe that they are in a comparable position to Carillion.
"The measures that Capita has announced as designed to strengthen its balance sheet, reduce its pension deficit and to invest in core elements of its business. Arguably these are the measures that could have prevented Carillion from getting into the difficulties that they did.""The measures that Capita has announced as designed to strengthen its balance sheet, reduce its pension deficit and to invest in core elements of its business. Arguably these are the measures that could have prevented Carillion from getting into the difficulties that they did."
Carillion, the construction and services company, collapsed in January after it was unable to secure financial support to continue trading.Carillion, the construction and services company, collapsed in January after it was unable to secure financial support to continue trading.
'More similarities than differences'
However, Ms Reeves described the government's thinking on the differences between Capita and Carillion as "muddled and complacent".
She said: "Both Capita and Carillion have debts of more than £1bn and pensions deficits in the hundreds of millions. Both Capita and Carillion paid out dividends of more than £1bn in the last five years.
"Both Capita and Carillion rely on the public purse for half of their contracts. Both Capita and Carillion were audited by KPMG. Both Capita and Carillion grew through acquisition and not through organic growth.
"It seems there are more similarities than differences between these two companies," she said.
Ms Reeves said ministers should consider if Capita should be able to bid for a fire service contract within the Ministry of Defence, and to review "what looks like a cosy and complicit relationship between the big accountancy firms, the Financial Reporting Council and the corporates that they are supposed to be auditing".