The Government has held an emergency meeting over the collapse of construction firm Carillion as ministers battle to keep public services running.
The COBRA committee, which responds to disasters and emergencies, met on Monday night after the crisis-stricken firm plunged into liquidation amid £900m of debt and a £587m pension deficit.
Carillion, which employs 20,000 workers across Britain, had multi-million pound contracts across the work of Government before banks pulled the plug on the 200-year-old firm early on Monday morning.
:: Carillion collapse: The day’s developments as they happened
These included work on the HS2 railway, the construction of new schools and hospitals, the building of the Aberdeen bypass and catering contracts with both schools and the Ministry of Defence.
The Government has been told it has questions to answer after Downing Street revealed eight new contracts were signed with Carillion since July last year, when the firm had issued a profit warning that sparked a sustained share value fall.
The Prime Minister’s spokesman insisted the Government had “kept a very close eye” on the firm but admitted there may be “lessons which can be learned”.
He said the Official Receiver will carry out a full investigation into Carillion’s downfall.
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Image: The failed firm held contracts to build HS2
Unions expressed anger at ministers following the firm’s collapse, along with a call for a public inquiry into the firm’s conduct and the Government’s decision to hand contracts to the company.
Labour leader Jeremy Corbyn used the collapse to call for an end to “rip-off privatisation policies” which he said had “fleeced the public of billions of pounds”.
“It’s time we took back control. We not only need to guarantee the public sector takes over the work Carillion was contracted to do – but go much further and end contracts where costs spiral, profits soar and services are hollowed out,” he said.
Carillion’s demise has also prompted an influential group of MPs to launch an investigation into Government outsourcing of public services, with senior Tory MP Bernard Jenkin comparing the crisis to previous scandals involving the Kids Company charity and supermarket Tesco.
Speaking in the House of Commons on Monday afternoon, Cabinet Office minister David Lidington sought to reassure Carillion employees and dispel fears taxpayers could be left with a hefty bill due to the firm’s collapse.
Amid heavy criticism of the Government’s relationship with the company, Mr Lidington also attempted to lay the blame for the firm’s failure squarely on Carillion itself.
He told MPs: “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 its 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.”
:: How Carillion’s demise could affect you
Image: Cabinet Office minister David Lidington sought to reassure employees
Major banks HSBC, Barclays, Santander and Royal Bank of Scotland are reportedly set to lose an estimated £2bn as a result of Carillion’s failure, while shareholders are expected to receive nothing.
Mr Lidington revealed Carillion’s former and current bosses will be investigated as he warned of possible “severe penalties”.
Questions have been asked about continuing salary payments to executives who had already left the firm.
Departed chief executive Richard Howson received £1.5m in pay, bonuses and pension payments in 2016, with Carillion having agreed to keep paying him a £660,000 salary and £28,000 in benefits until October.
Similarly, ex-finance chief Zafar Khan, who left the company in September, will receive £425,000 in salary for 12 months; while interim chief executive Keith Cochrane will be paid his £750,000 salary until July, despite leaving Carillion in February.
Mr Lidington said he could “completely understand” the “sense of unfairness” as MPs called for Carillion bosses to be made to hand back their “exorbitant bonuses”.
The Government is “doing everything possible to minimise any impact on employees”, Mr Lidington said, adding: “All employees should continue to turn up to work confident in the knowledge they will be paid for the public services that they are providing.”
A helpline is being set up for those staff affected, with ministers also aiming to reassure sub-contractors of Carillion.
The Government has also told former Carillion workers already receiving their pensions that they will continue to receive payments.
However, Mr Lidington said current Carillion employees on private sector contracts will only be paid for 48 hours and will not be offered the same protection as those in the public sector.
Image: The company was responsible for the construction of the £350m Midland Metropolitan Hospital in Smethwick
Labour’s shadow Cabinet Office minister Jon Trickett accused the Government of being “recklessly complacent” by attempting to lay sole blame for Carillion’s collapse on the company.
He said: “The House will conclude it was recklessly complacent in seeking to avoid responsibility for the Government and placing the whole responsibility on the company.
“After all Carillion provides 450 separate taxpayer funded contracts to the public.”
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Rail, Maritime and Transport union general secretary Mick Cash said: “The blame for this lies squarely with the Government who are obsessed with outsourcing key works to these high-risk private enterprises.”
Labour peer Andrew Adonis, who quit as chair of the Government’s National Infrastructure Committee last month, attacked ministers over Carillion’s collapse and raised questions about the role of Transport Secretary Chris Grayling in the awarding of HS2 contracts to the firm.