Carillion and Public Sector Outsourcing

Rebecca Long Bailey Excerpts

Wednesday 24th January 2018 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I am delighted, Mr Deputy Speaker, to see you in the Chair. The House will share my sentiments in sending our love and prayers to you at this difficult time.

Given the limited time available, I will not refer to all the poignant speeches that we have heard. We have heard Members in all parts of the House relate tales that have resulted from the aftermath of a week of crisis. Last Monday morning over 20,000 direct employees and pension-fund holders, as well as over 30,000 sub-contractors, suppliers and their staff, awoke to find they might be facing financial ruin. In the hours that followed, the cataclysmic effect that Carillion’s collapse could have on people’s lives became clear, along with the chaos it could cause to public services across Britain. One of the most scandalous stories to emerge in the aftermath was how much the Government knew, and how much they ought to have known, about the risks that Carillion posed, and how little they did to mitigate them.

In the last six months of its existence, Carillion issued three profit warnings. Indeed, the Government knew that those red flags were serious. Their own strategic risk management policy directed them to deem a business as high risk if it issued a profit warning. It specifically directed that for high-risk businesses, all Government Departments should be advised to reduce additional work with that business where possible. Despite that, the Government continued recklessly to award Carillion contracts again and again and again. They failed to monitor Carillion properly. The position of Crown representative was vacant from August to November 2017, and there were no meetings between senior UK Government Ministers and Carillion in the months immediately after the first profit warning. But that is not all. Even Government Members will think that what I have said so far is simply astonishing, but sadly—

[James Cartlidge]

Will the hon. Lady give way?

[Rebecca Long Bailey]

Given the time I have left, I am afraid I cannot—I would love to.

Sadly the Government’s culpability also extends to the reckless treatment of Carillion’s suppliers and subcontractors. The late payment of suppliers by Carillion was no secret, and the Government knew this. In July last year, both the Specialist Engineering Contractors’ Group and the Federation of Small Businesses highlighted to the Government how risk was transferred to suppliers at Carillion; that it was not paying suppliers on time and extended its payment period to over 120 days; how the Government were not enforcing the Public Contracts Regulations 2015 that ensure that subcontractors with a public sector contract should be paid within 30 days; and how Carillion made money off the back of early payments by charging fees.

The Government were also advised on suppliers’ retention moneys—a security deposit held by Carillion until project works are completed—which were not ring-fenced, despite these organisations advising the Government of the risks. They were even advised by Labour back in 2014, when my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams)—the shadow Secretary of State for Work and Pensions—stated:

“There is evidence that cash retentions have been used to shore up the working capital of…tier 1 suppliers…if tier 1 suppliers become insolvent, the small businesses in the supply chain are at risk of losing their retentions.”—[Official Report, 18 November 2014; Vol. 588, c. 210.]

Today, those retentions are estimated at a whopping £1 billion, which suppliers may never, ever see again.

Then there was the Government’s aversion to project bank accounts to protect project moneys from insolvency and ensure prompt payment to subcontractors. Both Her Majesty’s Treasury and the Cabinet Office have historically recommended that project bank accounts are used by public sector organisations on appropriate projects, so why was that not enforced in Carillion’s case? The simple fact is that suppliers were mistreated again and again, and the Government did not care. They did not step in and act. They must now support subcontractors and ensure that all the issues that I have referred to are dealt with in both existing and future Government contracts.

Then there is the workforce—the good people the Government have asked simply to keep coming to work every day. They have stepped up in this crisis, but what security were they offered? Carillion was a company renowned for its poor treatment of workers. It was found guilty in court of widespread blacklisting that destroyed livelihoods and the lives of many workers’ families, yet the Government continued to award contract after contract to it, no questions asked. Through the lack of protection for subcontractors, they again put workers’ lives at risk. What they also failed to tell us last week is that under a compulsory liquidation, all employee contracts are terminated, so the fact is that most Carillion employees do not have an official contractual relationship any more. There are no existing terms and conditions to transfer to a new contractor, so what support have they received—a hotline? Some 88% of RMT members who work for Carillion have not been contacted by the liquidator so far.

The Government must assure us that any business or provider that takes over Carillion’s contracts must also take on those employees on their pre-existing terms, or better. Until the long-term position is clear, they must assure us that the official receiver will grant formal contracts to employees to give some degree of certainty as to the period they will be employed for. They must also seek to protect agency and zero-hours contracts for Carillion workers to ensure that people can recover unpaid wages and report back in detail to us on the workforce who were affected in Carillion’s private sector arm. We also want assurances from the Government that they are doing all they can to replace apprentices within other companies that the Government have contracted with.

Finally, I want to highlight the Government’s failures to spot the alleged corporate abuse. Carillion handed £500 million to shareholders in the seven years before its collapse, while its pensions black hole spiralled out of control. It is, frankly, a national scandal that Carillion paid sums in dividends similar to what could have filled the gaping hole in its pension deficit. Did the Government request to view the company’s accounts? Did they look at the auditors’ submissions? Who knows! But even the most basic due diligence would have uncovered this.

It is a little too late, therefore, for the Prime Minister to wax lyrical about her desire to protect workers’ pension schemes by stopping payments to directors, when all the evidence suggests the Government knew exactly what was happening—that the pensions deficit was spiralling out of control. This is typical of the last seven years: a laissez-faire approach from a laissez-faire Government. It is clear that the Government knew of the risk Carillion posed and failed to do anything about it, and Britain is left worrying who is next. Is this a house of cards waiting to collapse? How secure is the outsourcing of our public services? I urge the Government to be transparent about the risks we face and ensure that the Public Accounts Committee has sight of all the risk assessments and improvement plans as a matter of urgency, and I urge them to support today’s motion.

--- Later in debate ---

[Mr Deputy Speaker (Sir Lindsay Hoyle)]

There are two ways. First, the point is now on the record. Secondly, I know that there are other avenues that you will pursue personally, Mr Gwynne, and I am sure that the Opposition will pursue them as well. I am sure that that will bring a fruitful outcome, but in fairness to the Government, the point is now on the record and they can take it on board.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

On a point of order, Mr Deputy Speaker. My point of order is not as exciting. I just wanted to confirm that the motion we just dealt with was passed unanimously, in which case, have you received any indication from the Government about when the Public Accounts Committee will be provided with the relevant reports?

[Mr Deputy Speaker (Sir Lindsay Hoyle)]

Once again, the point is now on the record. I think we can leave it there at this stage.

Co-operatives

Rebecca Long Bailey Excerpts

Thursday 14th July 2016 Westminster Hall

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone, and to serve opposite the Minister in our first debate together. I thank my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) for bringing this debate to the House and for his eloquent contribution. I thank all hon. Members for their contributions and their pertinent questions, which I hope the Minister will address in his response.

As a Co-operative party Member and the MP for Salford and Eccles, I am proud that the seeds of this radical movement began in my city, before the Rochdale pioneers set up shop. However, I will concentrate not on history, important though it is, but on our co-operative sector’s contribution to the economy.

The vote to leave the EU was a stark confirmation that too many people in our country have been excluded from the fruits of economic growth for too long. Britain’s relationships with the rest of the world are now open for renegotiation, but so is our previous economic model, which was not working in the interests of many communities up and down the country. Labour’s red lines on the economy, which the shadow Chancellor, my hon. Friend the Member for Hayes and Harlington (John McDonnell), set out last week, made it clear that we will not allow any future renegotiation to damage the interests of people here. Equally, we should no longer think it is acceptable for the wealth of our society to pile up in the hands of just a few people or in just one corner of our country. We need an economic model that can deliver shared prosperity across the whole country. Business as usual is not an option any more.

Labour Members are clear that co-operatives must be a critical part of rebuilding a new, fairer and more prosperous economy. As we have heard today, the opportunity for co-operatives is huge. Our co-operative sector is currently worth £37 billion. That is substantial, but far smaller than that of similar economies such as Germany and the US. Our co-operative sector is just 20% the size of Germany’s, but it has grown by 15% since 2010—faster than the rest of the economy—and 15 million people now own a share in a co-operative, up 16% since 2010.

Growth is also occurring across different sectors. Co-operatives UK reports that large numbers of tech co-ops are now being established. The logic of supporting collaborative tech development with a collaborative business model is clear. Platform co-ops, which are online tools that provide collaborative working spaces, are spreading rapidly, especially connected to the work that is carried out in my constituency. Although it is still in its infancy, the co-operative internet is becoming a reality.

Community ownership of energy has boomed in the past five years. The number of community share offers per year increased fivefold between 2010 and 2015, and £60.8 million was invested last year alone. The expansion has been particularly striking in the renewables sector. One study by Cardiff University found that each megawatt of community-owned, small-scale hydrogenation created 10 full-time equivalent jobs. For rural communities with access to natural resources but isolated from other economic activity, that represents a huge boost.

Given the rise of precarious employment and the so-called gig economy, co-operatives have a clear role to play, as my hon. Friend the Member for Cardiff South and Penarth eloquently illustrated. Earlier this year, Co-operatives UK published an excellent paper making that case convincingly. By sharing the costs of necessary administration, co-operatives set up to support the self-employed and micro-businesses can play a vital role in reducing the risks of self-employment. For example, as we have heard, the Musicians Union organising music teachers into co-operatives, rather than letting them sink or swim as individual freelancers, is a fantastic idea.

On the economic case for co-operatives, the vote to leave has clearly brought some of the UK’s economic difficulties into stark, full view. The vote was about more than just the impact of six years of needless austerity. Too many places felt that they had been left to languish in economic and industrial decline, starved of resources and investment. Britain has worse regional inequality than any other EU member, and our economy has become far too dependent on poorly paid, insecure work. In fact, the stagnation in productivity since 2007 is clear macroeconomic evidence of a failing national economic model.

Britain’s output per hour now lags far behind comparable economies in the G7. Every hour worked in the UK produces about a third less, on average, than the typical hour worked in Germany, the US or France. The productivity gap, frankly, is now the worst it has been for a generation. That matters, because productivity growth is the engine of economic growth in a developed economy; without it, economic growth is harder to come by. A major part of the productivity problem is that investment in the UK is simply too low, and it has been for a long time. Boosting investment by both Government and business will be essential. Changing business models, however, can also boost productivity, and that is where co-operatives can play an important role.

Worker-owned companies have a clear productivity advantage over conventional businesses. Recent research by the Institute for Public Policy Research has highlighted the potential importance of co-operative business models in driving productivity in otherwise low-paid parts of the economy, such as retail. If we want a secure economy, we need businesses that can grow and succeed. Evidence also suggests that co-operatives are more resilient than conventional businesses. Twice as many co-operatives than other businesses survive the crucial first five years.

I hope the Minister is listening, because we should be more ambitious about what can be achieved through policy. We want to see resilient, high-productivity businesses in an economy that is fairer for everyone. My hon. Friend the shadow Chancellor has previously expressed his ambition to at least double the size of the co-operative economy, which would be a £40 billion boost to the economy, but too much existing Government policy works against that. Cuts to renewable energy, and community generation in particular, make little economic sense. The damage done to genuine community-owned energy schemes through the withdrawals of incentives to investment, such as the seed enterprise investment scheme, has been significant.

The consolidation Act—the Co-operative and Community Benefit Societies Act 2014—was welcome recognition of the importance of the sector, but it did not go far enough in actively promoting co-operative ownership. Opposition Members would like to see greater support for co-operative forms of financing in particular, and we would welcome the Minister commenting on that in his response. Our financial system is simply not delivering as it should be for small businesses. By pooling resources and risks for small business borrowing, mutual guarantee societies could help ambitious small and medium-sized enterprises access the funding they need. Helpful legislation to assist with the formation of such societies would be along the lines of enabling the mobilisation of funds for small businesses through them clubbing together to raise credit.

Another major challenge that has been touched on today is business succession. Large numbers of small business owners are coming up to retirement over the next few years. Family businesses in particular face what the press has described as a succession crisis. Preston City Council, in Lancashire, inspired by the example of Cleveland, Ohio, developed an extensive programme of work to support its growing co-operative economy. It is actively seeking opportunities to create local co-operatives as part of local business succession, working with the local chamber of commerce to inform local businesses. I point the Minister in the direction of that council if he is looking for ideas.

Labour’s firm belief is that the co-operative sector in general should, and will, continue to make a critical contribution to Britain’s future economic success. We face a period of uncertainty, and the renegotiation of the UK’s relationship with the world is one part of that, but so is the widely admitted failure of the previous six years of austerity policy. A future economic direction has not been set, so the opportunity is there to make a clear break with the failures of the past. Co-operatives, by helping spread the wealth and providing better incentives for investment in capital and in the skills we need for the future, will be an essential part of our new economic direction. What is needed now from the Government is a clear commitment to make that happen. I would appreciate it if the Minister outlined the Government’s future policy direction and tell us his thoughts on my comments and those of other hon. Members.