Carillion: TUPE

Laura Pidcock Excerpts

Wednesday 21st February 2018 Westminster Hall

[Laura Pidcock (North West Durham) (Lab)]

It is fantastic to have you chairing this debate today, Ms McDonagh. I congratulate my hon. Friend the Member for Wolverhampton South West (Eleanor Smith) on securing it and on working so hard for her constituents. I know that her eagerness to secure this debate comes from a real anxiety about what will happen to all the workers.

What is wrong with the model of directly employed workers delivering contracts on behalf of the Government on such vital projects as school and hospital builds and prison maintenance; workers who have access to trade unions and vice versa; employers who afford rights and protections to their workers; and work that allows them to live a good life in security? Why not have a model whereby any profits made from the worker’s labour are reinvested in the wages of the workers and the projects that the nation needs? What we saw at Carillion was the absolute opposite of that.

Carillion is not only a well-known blacklister. From 2009 to 2016, it paid out £554 million in dividends—in other words, three quarters of the cash it made from operations. In the five-year period from January 2012 to June 2017, it paid out £333 million more in dividends than it generated in cash from its operations. We know that in the past six months Carillion issued three profit warnings. We also know that during that same period, as has been mentioned, and following those profit warnings, Carillion was awarded three contracts worth nearly £2 billion.

I know that Conservatives and those wedded to freedom of the market would maintain that a business does what it wants with its profits. It is up to them and there should be very little state intervention, but surely even those people—

[Stephen Kerr]

Will the hon. Lady give way?

[Laura Pidcock]

If the hon. Gentleman will let me finish, he might agree with what I say next. Surely even those people can see that paying out more in dividends to shareholders than the amount made in profits—paying out three quarters of cash made from operations—is not a healthy way to run a business.

[Stephen Kerr]

I agree with the hon. Lady’s last point, but her description of what Conservatives generally believe about the marketplace is a fallacy. We believe very much in the operation of markets, but within the framework of law. Directors of companies have serious responsibilities, both legal and moral, for the conduct of their affairs. That accountability is framed by the law that regulates the marketplace.

[Laura Pidcock]

Thanks for explaining the nature of conservatism. That was very welcome. I think the contracts made after three profit warnings tell their own story.

That way of doing business is catastrophic for workers, and damages progress on desperately needed public infrastructure. Imagine all the investment that could have been made if even half the money that went to shareholders had been invested in public projects and workers. That is why the Labour party calls on the Government to bring the contracts back in house. The situation today, with potential mass job losses, is not the fault of the workers, so a degradation of workers’ rights as a result of Carillion’s collapse—which threw 20,000 workers into a future of chaos and worry—is a price they should not have to pay.

The Government are not powerless in this situation, given that they have 450 contracts with Carillion. They were a major customer of the company, with a considerable stake in the future of the contracts and what the new jobs will be like. If there is any doubt that TUPE applies —particularly regulation 4 on protection of contractual rights and regulation 7 on protection from dismissal—I should hope at the very least for a Cabinet Office statement of practice to be issued to ensure the transfer of all employees in Carillion public sector contracts as if TUPE applied. That statement of practice should also apply to all contracts relating to central Government, local government, the NHS and all public bodies. Similarly, could the Government instruct the official receiver to transfer employees in private sector contracts as if TUPE applied? They gave an instruction to prioritise the continuation of public sector contracts, which was a good thing. It is right, in addition, to issue similar instructions on behalf of private sector workers, whose livelihoods are, as we know, no less important than those of people in the public sector.

It is extremely important that when workers transfer to a new employer, their individual contracts of employment and trade union recognition arrangements should follow them. So far, 980 workers have been made redundant and 7,500 have been transferred, but after all these weeks thousands of workers still face great uncertainty, as has been recounted in personal stories from constituencies. The Government, alongside the official receiver and special managers, must provide certainty.

The Government have said that the majority of employees who have already been transferred are on similar terms and conditions. What does “majority” mean—is it 51% or 99%—and what does “similar” mean? With three Conservative Members in the Chamber, I do not want to be accused of being overly sceptical, but the Government are hardly seen as a bastion of workers’ rights, and it is therefore unlikely that in this instance “similar” would equate to an upgrading of workers’ rights. As to those who were not transferred with similar conditions, what degradation was there of their terms?

The full scale of the catastrophe cannot just be forgotten as another failure of outsourcing, especially when, rather than resorting wholesale to an alternative model, the Government are simply allowing a similar operation to bid for contracts. That makes me very concerned about the long-term security of the jobs. How will the Government track the long-term outcomes for Carillion workers in their new employment and training places, as well as those for the self-employed and employees of subcontractors?

As the Government know, regulation 13 of TUPE, which places a duty on the official receiver and the special manager to inform and consult employee representatives in relation to TUPE transfers, is still a requirement even if regulations 4 and 7 do not apply. It is therefore important in setting workers’ expectations and giving clarity about their future. It relates to information about whether there will be a transfer—and the transfer date—as well as the legal, social and economic implications for any affected employees. Have the official receiver and special managers been complying with that duty? That is not clear. Are those representatives being informed and consulted? Worryingly, I read yesterday that Unite the union has discovered that Carillion did not pay into the NHS pension scheme in December 2017, even though deductions were made from employees’ salaries. I should like to know what happened to those pension contributions.

My final point is that there could be an argument that regulations 4 and 7 of TUPE apply in the case of Carillion. I understand that the usual position when a company is put into compulsory liquidation is that trading ceases and operations come to a complete halt. In an ordinary liquidation, priority is given to paying off creditors, and therefore regulations 4 and 7 of TUPE do not apply. In Carillion’s situation, the Government made it clear that the official receiver should instruct some of the Carillion companies to continue with their operations—especially those relating to public sector contracts—so that the services being provided by Carillion could continue without a break. The Minister for the Cabinet office said:

“Let me be clear that all employees should continue to turn up to work confident in the knowledge that they will be paid for the public services they are providing.”—[Official Report, 15 January 2018; Vol. 634, c. 624.]

The official receiver’s decision that some Carillion companies should carry on trading to safeguard and maintain the services that they are providing means that the liquidation has been conducted in the same way as an administration, in which regulations 4 and 7 of TUPE would undoubtedly apply.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Andrew Griffiths)]

indicated dissent.

[Laura Pidcock]

The Minister shakes his head; if he does not believe me, I point out to him the d’Urso case—that was my northern Italian pronunciation and I am happy to provide the Minister with my notes afterwards. The case considered whether the Italian version of TUPE applied to transfers effected by a company that was subject to a special administration procedure for large undertakings in critical difficulty. The special administration procedure had many of the features of a compulsory liquidation. None the less, the European Court of Justice decided that the business transfers directive could apply if it had been decided that the undertaking should continue trading, for so long as the decision to continue trading continued in effect.

--- Later in debate ---

On resuming—

[Laura Pidcock]

When you suspended the sitting, Ms McDonagh, I thought that I had done something wrong or was being outrageous, but in fact there was a Division. I was pointing the Minister to the case in Italy. I urge him to look at it and consider the application in Carillion’s case, because there are so many similarities.

Where there is a will, there is a way. The political questions highlighted by the Carillion case are crucial. The model of outsourcing to companies that essentially leak taxpayers’ money to make rich people even richer has had its day. The same taxpayers who fund the obscene wealth of the shareholders face joblessness, degradation of their terms and conditions and a race to the bottom on what rights they will have left. We know that that model has had its day, but I am not sure that the Government do. However, the critical question today is what happens to the workers, their jobs, their pay, their terms and conditions and their security. I urge the Government to take decisive and reassuring action for thousands of these workers and to answer some of the critical questions that we have all posed here today.

[Siobhain McDonagh (in the Chair)]

Let me clarify that the debate will end at 4.16 pm; I do not want the Minister to feel that he has to abbreviate his contribution.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Andrew Griffiths)]

Thank you, Ms McDonagh; it is great to have time to breathe and to think about what I will say. It is a great pleasure to serve under your chairmanship. This is only my second Westminster Hall debate as a Minister, so please be gentle with me as we go.

I congratulate the hon. Member for Wolverhampton South West (Eleanor Smith) on securing the debate. I know that she has been incredibly concerned about her constituents. We have spoken. I called her on the very day when Carillion went into insolvency. We have met and spoken on a number of occasions. I know that she brings this matter to the House because she is deeply concerned about the impact that the Carillion insolvency will have on her constituents and the people who work at the Wolverhampton headquarters.

We all recognise the impact that the Carillion insolvency has had and the weight of it. The Government have taken decisive action to mitigate the effects of the Carillion insolvency on employees and firms in the supply chain since it became clear that the company was in severe trouble. Although our No. 1 priority was to protect the vital public services delivered by Carillion, we have also sought to minimise the impact on the private sector and all the jobs that rely on it. Where private sector clients want services to continue, pending transition to another supplier, and have agreed to pay for those services, the official receiver has agreed to maintain them. Through the official receiver and the appointment of special managers, we have ensured that vital public services have been maintained.

There was some suggestion earlier of public services being at risk. We have actually seen an orderly, smooth transition. We have managed to protect the hospitals, prisons and schools—all the public services that rely on the services that were being provided by Carillion. That was our major priority, but of course we have an added interest in doing all we can to protect not only all the thousands of employees employed by Carillion, but the many thousands of jobs in the supply chain—the contractors who, through no fault of their own, find themselves in a difficult position because of the Carillion insolvency.

To date, as I think has been mentioned during the debate, 7,610 of Carillion’s UK employees have transferred to new employers and 1,141 employees have, sadly, been made redundant. I will come on to the support that we are putting in place for those who are made redundant. Carillion had more than 18,000 UK employees, and we hope that the special managers will announce further transfers of jobs and contracts in the very near future.

On 26 January, the Ministry of Justice, for example, announced the creation of a new, Government-owned facilities management company. There has been some suggestion, raised earlier in the debate, that we should transfer wholesale all of these contracts back into public ownership, back into administration by the state. Our approach has been pragmatic: when we can have a smooth transition to new private sector providers that maintains jobs and services, and returns money for the creditors—we must not forget that one of the main jobs for the special manager is to protect the interest of all those creditors owed money by Carillion—we will do so. But when it is right that we take contracts back into public ownership and management, we will also do that. We have a pragmatic rather than a dogmatic approach.

[Laura Pidcock]

I thank the Minister for giving way so soon into his speech. I want to stress this point. The Government have essentially underwritten public sector contracts, so that they can continue, which I support. However, does he agree that that is not a usual feature of a compulsory liquidation? It is more like an administration procedure, and therefore TUPE regulations could apply.

[Andrew Griffiths]

That is the point the hon. Lady made in her speech. Let us be clear: Carillion is in insolvency, not in administration—there is a distinct difference in law. While the Government have stood behind Carillion to ensure that those public services continue to be delivered by the company during that smooth transition, in law, Carillion is in insolvency. I commend the hon. Lady on her Italian, but the point she makes is not relevant to the Carillion case, unfortunately. Later in my speech, I will explain why TUPE does not apply in this case.

The new company that I referred to, the GovCo from the Ministry of Justice, will ensure the delivery of, for example, prison facilities management previously provided by Carillion, including things such as cleaning, reactive maintenance, landscaping and planned repair building work. Those jobs have been taken in house to a GovCo. We have also seen positive signs regarding Carillion’s larger contracts.

As I said, a number of jobs have already been secured, but, as hon. Members will have seen, the media have recently reported on Serco’s and Brookfield’s interest in purchasing a number of contracts and transferring roughly 4,000 workers, although that is not yet confirmed. I understand that the official receiver and the special managers are working hard with customers to try to secure agreements, which will secure further jobs.

We also have to remember that some of these contracts are in the private sector and some are in the public sector. The Government were a customer of Carillion. We did not own Carillion. My hon. Friend the Member for Stirling (Stephen Kerr) rightly pointed out that we did not ride to the rescue and bail Carillion out. Our intention was to protect public services and, wherever possible, protect the jobs that relied on them.

The hon. Member for Barnsley East (Stephanie Peacock) has had to leave because of the Division, and I understand that. She mentioned in particular the issue of apprenticeships, which was also raised by other hon. Members. The Construction Industry Training Board, the CITB, has now conducted face-to-face discussions with all of the 1,400 Carillion apprentices and has so far found new employers for 725 of them. In addition, 180 of those were level 1 pre-apprenticeships, and those have been transferred to new training providers. The CITB is working to ensure that remaining apprentices are supported to find new employers and training providers. We are confident—the CITB is confident—that there will be opportunities and new apprenticeships for all of those apprentices who wish to continue with their studies.

As I said, we have had the question of whether TUPE should apply. While we welcome the protection of Carillion’s employees, and I fully understand the desire of the hon. Member for Wolverhampton South West to protect the terms and conditions of the staff that she represents, it might just help if I explain to hon. Members that there are over 300 companies in the Carillion group, of which around 200 are based in the UK. Currently, 27 companies are subject to compulsory liquidation proceedings in the UK. When these companies are responsible for employing Carillion’s 18,000 employees, it is simply a matter of law that some elements of TUPE do not apply. Protections for transferring employers is a well-established principle that, as we have heard today, derives from EU legislation dating back to the 1970s. However, there are good reasons why key TUPE provisions do not apply when a company goes into liquidation.

The reason why TUPE is not applied in various insolvency situations, including liquidation, is that it is considered an obstacle to rescuing the businesses and saving jobs. That has to be our priority, of course. We want to rescue and secure these jobs. A decision taken by policy makers and Governments of all colours not to apply TUPE provisions in these cases is well understood, as are the reasons behind it. As a result, regulation 8 of the TUPE regulations 2006, covers insolvency proceedings and provides that these provisions do not apply

“where the transferor is the subject of bankruptcy proceedings or…insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner.”

That is exactly the case that we see here with Carillion.

There are two good reasons why the Government do not want to apply TUPE. First, it would undermine the intention of rescuing jobs, as I said. Secondly, to apply TUPE specifically to the present liquidation scenario would require an emergency Act of Parliament, creating a special statutory scheme for those named companies, having retrospective effects. That would cut across fundamental principles at the heart of our democracy. I am sure that no colleagues in Westminster Hall today would wish to do that. The compulsory application of TUPE to Carillion companies is not, therefore, a matter that can simply be agreed between the liquidator and the unions. There is legal precedence here that we cannot simply ignore.