2018 02 – Parliamentary Notes

Parliament Notes

by Dick Barry

Carillion and Public-Sector Outsourcing

On 24 January Jon Trickett, Shadow Lord President of the Council, led a debate for Labour on the Carillion crisis and outsourcing, calling for an assessment of the risks involved in the latter.  Due to lack of space it was not possible to include the response by David Liddington, The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster.

Jon Trickett (Hemsworth) (Lab) I beg to move, That an humble Address be presented to Her Majesty, That she will be graciously pleased to give directions to the Chancellor of the Duchy of Lancaster that the assessments of risks of Government Strategic Suppliers by Her Majesty’s Ministers referred to in the Answer of 19 December 2017 to Question 114546 and any improvement plans which Crown Representatives have agreed with such strategic suppliers since 2014 be provided to the Public Accounts Committee.

Thank you for calling me to speak, Mr Deputy Speaker.  My thoughts, and I am sure those of everyone in the House, have been with you during this very difficult time for you and your family.

Time is running on, and I am going to attempt to be brisk, but I am not going to be non-partisan, because the Government have been negligent in the exercise of their duty to protect the public purse.  In the past two hours, the Government have attempted to pre-empt this whole debate by sending a letter to every one of us.  The purpose of the letter is to attempt to whitewash the way in which the Government have conducted outsourcing, particularly in relation to Carillion.  Those who have had the chance to study the letter will find the names of six companies that are going to take over the public-sector contracts that Carillion was administering.  I have only just had a chance to look at it myself, but that list is quite extraordinary.  What a catalogue of failure!

One of the six firms donated money directly to the Tory party.  Two of the firms are known for blacklisting workers.  Amazingly, one of the firms is currently under investigation by the Serious Fraud Office for suspected offences of bribery and corruption.  Another has previously been caught red-handed mispricing contracts, underestimating their eventual cost.  As a consequence, £130 million was wiped off its share value.  Another of the companies operates in the Cayman Islands and has been shown to use that location as a way of avoiding tax.  Another of the firms is part of a group that has reportedly abused and exploited migrant workers in Qatar.  My reaction to all that—I do not know whether it is unparliamentary—is to use three letters: WTF!  What were the Government doing producing a list of that kind?

The truth is that, as it is now with this list, so it ever was with this Government.  Back in 2017, while the Government were sleeping on the job, I submitted a written parliamentary question asking how many strategic suppliers had been rated either green, amber, red or black according to the severity of the risk posed by the supplier to the taxpayer.  The Government’s reply was fascinating.  They refused to tell us how many of the suppliers posed a risk, saying that that could prejudice the contractors’ commercial interests.  I did not ask the identity of those contractors; I asked only for the number that posed a risk to taxpayer interests.  So my question posed no commercial threat whatever to any company.  The Government’s response illuminates their whole approach, which shows little regard for the needs of the taxpayer while paying far too much attention to protecting the commercial interests of their suppliers through every stage of the procurement process.

In the past few days, I have been approached by a whistleblower.  He told me that the civil service had advised Government Ministers to insert into every ​outsourcing contract an indemnity clause whereby the supplier of the service would indemnify the taxpayer, should the company get into difficulty.  Remarkably, according to my whistleblower, the Government completely ignored the risk and rejected the advice.  It was even more remarkable to discover that Carillion’s contracts with its subcontractors insist on the inclusion of such clauses in their contracts.  The company, which has now become the poster child for corporate recklessness, took more steps to protect its finances than the supposed custodians of the taxpayers’ money sitting in their comfortable ministerial offices.

Carillion not only issued a number of profit warnings over the past few months, as we all now know, but it was also targeted by short selling, which is also wicked.  Short selling is a practice whereby so-called investors bet on the collapse of a share price.  It is as if the Government accept that the serious business of financing large enterprise is nothing more than a casino, with people betting against the price of companies.  One firm, BlackRock—remember its name—was shorting so much that at one stage it owned nearly 10% of the entire company.  The fact that that happened is troubling, but we then discover that Mr Osborne, the former Chancellor of the Exchequer who signed off the Government deals with Carillion, is now being paid £650,000 a year by BlackRock.  While it was common knowledge that Carillion was one of the most shorted stocks on the exchange, the Government, seemingly wholly ignorant of everything going on around them, continued to hand contracts to Carillion to the tune of billions of pounds.

James Cartlidge (South Suffolk) (Con) rose—

Jon Trickett I will give way to the hon.  Gentleman, but I ask him to answer the following question.  Does he believe it to be right and proper for the governing party to receive donations from a person who is currently exercising a supervisory public function as a Crown representative on the Government’s behalf?  Does he think that that is right?

James Cartlidge It is very kind of the hon. Gentleman to tell me what my question should be about, but I was going to ask him whether it is his policy to take all the contracts in-house.

Jon Trickett I will get to that in due course.  However, the hon.  Gentleman did not defend the practice of Crown representatives handing money to the Conservative party.  Not only is the Crown representative for the energy sector a Tory party donor, but that person donated £15,000 to the Prime Minister, who took the money.

Court testimonies submitted over the past few days as part of Carillion’s liquidation show that its key clients, lenders and insurers were already pulling out of the business and getting well clear of it months ago.  The private sector clearly saw a fire, but the Government did not even detect smoke from a company that appeared to be then, and obviously is now, going up in flames.  Perhaps that was why the Government failed to appoint a Crown representative for the three crucial months at the end of last year when it became clear that Carillion was in deep trouble and was issuing profit warnings left, right and centre.

Crown representatives are appointed to monitor, on behalf of the taxpayer, the contracts of key strategic suppliers to Government and to ensure that everything is running smoothly.  I have already referred to one Crown representative, but the House may be interested to know about the backgrounds of some of them, because they are curious.  A number of them—this is unbelievable—actually oversee contracts that relate to their own private sector work and yet they are appointed by the state to look after outsourcing on the public’s behalf.  As I just mentioned, one of them donated £15,000 directly to the Prime Minister herself.  I will use some strong language here: the ordinary man or woman in the street can draw only one conclusion, which is that this has been a complete racket.

Carillion posed a clear and present risk to the taxpayer, but not only did the Government fail to act, they had a cosy relationship with the key decision makers, some of whom were active Tory supporters.

The problem goes well beyond Carillion, so let me widen the argument.  The Government have failed to think strategically about the risks to the economy, as well as the risks to the taxpayer and public services.  The Government handed over 450 separate contracts to Carillion, which employed 20,000 workers and used 30,000 separate subcontractors.  This was a major industry that had an impact everywhere in the country, yet the company was clearly deep in trouble for some time.  Frankly, I have no confidence at all in the statement rushed out by the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster, the right hon.  Member for Aylesbury (Mr Lidington) in the last couple of hours before this debate.  The assurances in that document are pretty feeble.  We want an absolute guarantee on behalf of the people employed directly or indirectly by the company that both their jobs and the services provided by the company will be protected.

Rachel Maclean (Redditch) (Con) Will the hon.  Gentleman give way?

Jon Trickett I will give way but, in doing so, let me ask her the following question.  Does the hon.  Member for Redditch (Rachel Maclean) believe that companies with public contracts paid for by taxpayers’ money should pay tax in the United Kingdom, yes or no?

Rachel Maclean The short answer is yes.  The hon.  Gentleman says that he has no confidence in this Government’s ability to award public sector contracts.  Does he therefore have any confidence in the previous Labour Government, who awarded billions of pounds of contracts to private sector companies, and in Labour-run Leeds City Council, which did the same?  Does he have no confidence in his Labour colleagues?

Jon Trickett Carillion did not go bust eight years ago, when Labour was in power; it went bust last week.  The fact is that the hon.  Lady has not answered the central point, which is that 13 of the 20 biggest Government contractors have subsidiaries in tax havens—[Interruption.] And the Minister is prepared to defend it.  It is outrageous.  [Interruption.] Leeds City Council, in which I no longer play a part, did not hand over a contract to Carillion the other week.

Thirteen of the 20 largest Government contractors have subsidiaries in tax havens.  Those companies are happy to take taxpayers’ money and make a profit, but it seems that they are not prepared to pay tax back, which is morally incorrect and should not be happening.  In fact, it is a scandal.

Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op) The hon.  Member for Redditch (Rachel Maclean) put a question to my hon. Friend the Member for Hemsworth (Jon Trickett) on local authorities.  Does he agree that the reason local authorities are too often forced down the route of contracting out services is that the Government have starved them of funding for the past seven years, meaning that local authorities simply do not have the wherewithal to do the work themselves?

Jon Trickett My hon. Friend makes a powerful and unanswerable point.  We want a categorical assurance that the jobs of the subcontractors and employees are protected and that the services will be sustained.  Is it not clear that the Government played roulette with people’s livelihoods in the most reckless manner?  The truth is that the Government have been so wedded to the dogmatic idea that the private is always good and the public is always bad that they never questioned the existing orthodoxy, even when the evidence was right in front of their nose.

Dr Rupa Huq (Ealing Central and Acton) (Lab) I echo the words of my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell): it is a pleasure to see you back in your place, Mr Deputy Speaker.  I wonder whether my hon. Friend the Member for Hemsworth (Jon Trickett) shared my horror today at pages 4 and 5 of the Daily Mirror, which report: “‘Greed and lunacy’ as Carillion paid shareholders £500m while pension…hole spiralled out of control.”  Surely any company of this magnitude should meet its statutory obligations before paying out dividends to shareholders.

Jon Trickett My hon. Friend is absolutely correct.  In the 16 years up to 2016, the dividends paid to shareholders increased every single year, while the pension pot and the conditions of work and the pay that the workers received was diminishing.  By the way, Mr Deputy Speaker, I met a subcontractor of Carillion the other day, who told me that the company had a policy of not paying anybody in December, because on 1 January the bank wanted to look and see how much liquidity was left.  Is that not shocking?

Maybe the Government’s devotion to outsourcing is the real reason why they have failed so monumentally in relation to Carillion.  They had a blind assumption—and still have—that contracting out works efficiently, and that the market always knows best, which we know is not the case.  If they do not learn from the repeated failures of outsourcing, there will be another Carillion around the corner, and then another and another.  One needs only to look at companies such as Interserve and Mitie, which deliver public services, to see how fragile some of these Government contractors are.

I could stand here and reel off a long list of outsourcing companies that have been guilty of fraud, tax avoidance, blacklisting, failure to pay contractors, and even, shockingly, billing the taxpayer for tagging people who had died.  They have presided over, and have been vehemently committed to, a failed and failing ideological project.  That is my charge today.

My opposite number, who I am pleased to see in his place—the Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster—has personally shown lots of enthusiasm for handing out Government contracts—

In the Minister’s role at the Ministry of Justice, what did he do?  He awarded a £25 million Government contract to G4S.  But that company was under investigation for fraud against the taxpayer.  He snuck out plans to privatise the collection of court fines, and he even proposed giving private companies the power to arrest our fellow citizens.  His Department bailed out a private probation service with an additional £277 million over seven years, and he failed to deliver the promised £115 million that he said would be delivered by outsourcing two prisons.

We need to change direction.  Let me briefly set out the case, because outsourcing of procurement has boomed under this Tory Government.  It is now worth £242 billion.  Nearly a third of public expenditure—of our taxes—is being put at risk by a Government who are blindly following a dogma.

To be clear, there never was a true market in outsourcing.  It is an oligopoly.  The course of action that the British Government set out on has led only to the creation of a handful of mega-corporations, almost too big to fail, and those corporations have penetrated nearly every aspect of the state, both central and local.  This so-called market works well for a handful of companies making huge profits out of the taxpayer, but it is not working for anybody else.

We want the Government to see the facts as they are, not through the lens of a tired, stale, outdated, dogmatic view of the world.  Jeremy Corbyn, our leader, commenting on the Carillion debacle said that we are now coming to a turning point, and he was right.  He caught the mood of the country.  The public are tired of outsourcing.  They want democratically accountable, quality services, which are run effectively and efficiently in the interests of the public.  Every poll we can look at shows the same thing: the people are completely disabused of this whole process.  That is why the House of Commons must take up the task that the Government have failed to act on.  Where else could we start but by referring the matter to our excellent Public Accounts Committee?  That is what the motion recommends.

The Prime Minister and her Government have squandered taxpayers’ money on a failing dogma.  They have run out of new ideas.  They have proved unable to grasp the change that our country desperately needs.  Even her own MPs agree.  The right hon.  Member for Mid Sussex (Sir Nicholas Soames) says: “Where’s the bold and the brave?” He is talking to the Prime Minister.  He says, “it’s dull, dull, dull.” He is absolutely correct.

I say to my hon. Friend the Member for The Cotswolds (Sir Geoffrey Clifton-Brown), if I may call him my hon. Friend for a moment—we used to be pairs, back in the old days when pairing worked.  I must not say this in front of any Whips, so I hope they are not listening: there were occasions when he and I arranged our escape plans to avoid some of those late votes.  However, in this case he is entirely wrong.  In any event, should he really speak on a motion that says that the matter should go to the PAC?

I was finishing my speech.  “Dull, dull, dull!” With those words, I commend the motion to the House.