UK Cabinet ministers held an emergency meeting last night to ensure vital public services are kept going after the key government contractor Carillion collapsed, putting thousands of jobs at risk.
The Cobra meeting in Whitehall discussed the maintenance of public/private sector contracts worth £1.7 billion, covering the provision of school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.
The company’s biggest problems were cost overruns on some public sector construction projects, including the £745 million Aberdeen bypass, which was delayed because of slow progress in completing earthworks.
Scott Wright: Questions come thick and fast as Carillion liquidators sift through wreckage
It was reported Wolverhampton-based Carillion owes thousands of companies as much as £1 billion.
Facing questions from angry MPs, David Lidington, the Cabinet Office Minister, insisted the firm’s failure would not lead to a taxpayer bail-out but, rather, see "shareholders and lenders bear the brunt" of the losses.
Shareholders are set to be wiped out and lenders including Royal Bank of Scotland, HSBC, Barclays and Santander face losing an estimated £2 billion as a result of the collapse of Carillion.
Jeremy Corbyn described it as a "watershed moment" for private sector involvement in public services.
"It is time to put an end to the rip-off privatisation policies that have done serious damage to our public services and fleeced the public of billions of pounds," declared the Labour leader.
Scott Wright: Questions come thick and fast as Carillion liquidators sift through wreckage
In his Commons statement, Mr Lidington said the Official Receiver would investigate the role of the company's former and current directors in its demise, warning they could face "severe penalties".
But the Government itself came under fire.
Calling for swift action to bring public sector contracts back in-house to protect services, workers, and taxpayers, Jon Trickett, the Shadow Cabinet Office Minister, said: “Given £2 billion worth of Government contracts were awarded in the time three profit warnings were given by Carillion, a serious investigation needs to be launched into the Government's handling of this matter.
"It is vital that shareholders and creditors are not allowed to walk away with the rewards from profitable contracts while the taxpayer bails out loss-making parts of the business."
Tommy Sheppard for the SNP also asked: “Is it incompetence or ideology that has led ministers to sign off multi-million contracts to a company that was on the verge of going bust?”
Noting how thousands of people would now be worried for their jobs, the Edinburgh MP said while some contracts might be able to be transferred to other companies, some might have to be directly managed by the UK Government.
Mr Lidington pointed out how around three-fifths of Carillion’s revenues came from contracts that had “nothing to do with” the UK Government. “Indeed,” he explained, “the problems that Carillion faced arose in the most part from those contracts, not from Government contracts.”
Scott Wright: Questions come thick and fast as Carillion liquidators sift through wreckage
The minister told Mr Sheppard: “The Government are certainly going to continue to pay the wages -salaries, as well as those of suppliers and subcontractors - in respect of UK Government contracts in Scotland, in the same fashion as occurs anywhere else in the UK.”
However, Mr Lidington made clear there would be no such support for private companies employing Carillion, which would only have only 48 hours of Government support.
The construction giant, which employs around 20,000 British workers, also has a pension deficit of £587m.
Some 27,000 staff are involved in the company’s defined benefit schemes. The Government stressed that Carillion retirees already receiving their pensions would continue to get their payments.
The pension funds will now be managed by the Pension Protection Fund, which said: "We want to reassure members of Carillion's defined benefit pension schemes that their benefits are protected by the PPF."
The firm’s collapse came amid growing anger at bumper pay-outs received by the firm's former chief executive Richard Howson.
Scott Wright: Questions come thick and fast as Carillion liquidators sift through wreckage
He pocketed £1.5 million in salary, bonuses and pension payments during 2016 and, as part of his departure deal, Carillion agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.
Sir Vince Cable, the Liberal Democrat leader, said the fact Mr Howson was "still being paid his salary, plus perks and bonuses" was a "reward for failure that has to be looked into".
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